The industrial warehouse space market is nowhere near its peak

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Dive Brief:

E-commerce is fueling the industrial warehouse space boom, and even though economic expansionary cycles usually last seven to eight years, the industrial space market shows no sign of peaking, according to a CBRE report.

The current economic expansionary cycle began in 2009, but industrial real estate didn't begin to grow until the beginning of 2013; so theoretically, an industrial real estate peak is still a few years out.

Cushman & Wakefield also reported that in the first quarter of 2018, industrial real estate vacancies dropped 0.3% YoY, and rents continued to reach record highs in part due to a strengthening economy and job market.

Dive Insight:

CBRE's Global Head of Industrial and Logistics Research, David Egan, told Supply Chain Dive in an interview that the industrial real estate market is unlikely to downturn unless consumer spending behavior becomes more conservative — and because the economy is so strong, that's unlikely to happen anytime soon.

The data points to confident consumer spending, and as long as that data remains positive, the industrial real estate market will continue to grow.

Industrial real estate also tracks closely with the rise of e-commerce, Egan said. The industrial real estate market really started to accelerate in 2013, which was about the time e-commerce companies started providing next-day and same-day delivery. Since then, the two have grown together at a remarkably fast pace.

"As consumer expectations evolved and consumers became more difficult, there’s a dual effect: providers start to set up their networks to provide that kind of service," Egan said.

Egan doesn't think there's a peak for industrial real estate in the near future, as that specific market is only six years into its expansionary cycle.

"Things are more or less pretty good right now," Egan said. "The one thing I would keep an eye on is consumer behavior. If they start to get more conservative and demonstrate less confidence, that’ll probably make its way into our marketplace before long."

The industrial real estate market peak — when it arrives — will likely be because of a political event or economic slowdown, Egan said.

But for now, there's no need to worry. Despite inflammatory trade rhetoric between the U.S. and some of its top trading partners, Cushman & Wakefield's report stated that because "little formal trade policy has taken effect," consumers are spending unheeded, likely because the strong job market and rising wages are inducing economic optimism.

Given the current economic climate, industrial real estate rents will continue to skyrocket as vacancies plummet — which means e-commerce will continue to grow as well.